Hay Group: Median pay increase for U.S. employees expected to be 2.5% next year

The median pay increase U.S. employers are planning to give employees next year is 2.5 percent, according to a Hay Group survey of compensation and benefits professionals.
That is the lowest planned increase in a decade, according to the Philadelphia-based global consulting firm, and comes to a “real” increase of 0.7 percent after factoring in the consumer price index forecast of 1.8 percent for 2010.
When the survey was taken in July 2008, before the onset of the financial crisis, the planned increase was 3 percent. The actual pay increase this past year turned out to be 1.9 percent. The survey of 650 organizations spanning all major industries also found that 40 percent of companies reduced or eliminated 401(k) matches this year, with some planning to reinstate matches and match amounts this year, and 35 percent of companies with defined benefit pension plans are freezing those plans.
Hay said “most” companies are increasing contributions, co-pays and deductibles for their employee health-care plans.
Mel Stark, vice president in the Reward Practice at Hay Group, said, “Organizations seem to be spreading their salary increases thin and providing a little bit to everyone," with top performers averaging 2.8 percent increases versus the 2.5 percent median. “Organizations really risk their top talent exiting to other organizations if they don’t feel that their contributions are being recognized, financially and non-financially,” he said. “The only way to do this on the salary increase side is to zero out increases for marginal performers. Recruiters are getting more active and there is always a market for top talent — even in the toughest of business environments.”
Meanwhile, Stark said, “Managers are really challenged in maintaining a motivated work force environment in the midst of layoffs, base salary freezes and lower bonuses. Recognizing employee’s contributions and ensuring meaningful and impactful work opportunities in a healthy work climate go a long way in this economic environment.”